Annaly Capital Management, Inc. (NYSE: NLY) ("Annaly" or the
"Company") today announced its financial results for the quarter
and year ended December 31, 2019.
Financial Highlights
- GAAP net income (loss) of $0.82 per average common share for
the quarter, ($1.60) for the year ended 2019
- Core earnings (excluding PAA) of $0.26 per average common share
for the quarter, $1.00 for the year ended 2019
- Economic return of 7.6% for the quarter, 14.1% for the year
ended 2019
- GAAP return on average equity of 31.20% and core return on
average equity (excluding PAA) of 10.56% for the quarter
- Book value per common share of $9.66 up from $9.21 in the prior
quarter
- Economic leverage of 7.2x down from 7.7x in the prior
quarter
- Declared quarterly common stock dividend of $0.25 per
share
Business Highlights
Fourth Quarter Highlights
- Capital allocation to credit increased to 26% from 23%, driven
by $1.8 billion in new credit assets
- Annaly Residential Credit Group completed a $465.5 million
residential whole loan securitization and purchased $957.0 million
of residential whole loans during the fourth quarter
- Annaly Commercial Real Estate Group closed $596.0 million in
new investments, bringing total assets to $2.3 billion, an increase
of 31% from the third quarter
- Annaly Middle Market Lending Group closed $238.7 million of
loans in the quarter
- Average interest rate on repo borrowings declined by over 40
bps during the quarter to 2.09%; extended weighted average days to
maturity of repo to 65 days
- Appointed Serena Wolfe as Chief Financial Officer
- Separated the roles of CEO and Chair of the Board; appointed
the Company’s first independent Board Chair
- Subsequent to quarter end, announced signing of definitive
agreements under which Annaly will acquire its external manager,
Annaly Management Company LLC, and transition to being an
internally-managed REIT
Full-Year 2019 Highlights
Investment and Strategy
- Originated $4.6 billion of new credit assets in 2019, up 11%
from 2018
- Annaly Residential Credit Group issued $2.5 billion in
residential whole loan securitizations across six transactions
since the beginning of 2019, inclusive of the $374.6 million
residential whole loan securitization closed subsequent to year
end
- Expanded partnerships to more than 25 across our four
businesses
- Authored industry-focused joint study on GSE reform in
conjunction with Barclays' Head of Macro Research
Financing and Capital
- Raised gross proceeds of $442.5 million through issuance of
Series I fixed-to-floating rate cumulative redeemable preferred
equity; redeemed all outstanding shares of Series H and Series C
classes of preferred stock in May and July, respectively, reducing
the cost of preferred capital by 15 bps
- Raised $1.2 billion of common equity inclusive of $223.2
million of common shares repurchased during the second half of 2019
to take advantage of temporary market dislocation
- Annaly Middle Market Lending Group added $695.0 million of
credit facility capacity throughout the year
Corporate Governance
- Expanded Board of Directors with election of two new
independent directors during 2019; Board comprised of 82%
independent directors and 45% women directors
- Published extensive disclosure on the Company’s continued
commitment to leading Corporate Responsibility practices including
the launch of Annaly's Corporate Responsibility web page
- Annaly’s Women’s Interactive Network hosted two external events
in 2019 with nearly 350 attendees, including a Women’s Leadership
Event and Nonprofit Board Fair, to enhance and empower women both
inside and outside of Annaly
“Annaly successfully executed on its strategic goals and
initiatives during 2019, including generating an economic return of
over 14%, our highest annual return since 2014, and originating
nearly $5 billion of credit assets throughout the year,” stated
Glenn Votek, Annaly’s Interim Chief Executive Officer and
President. “Although we are always prepared for uncertainty, our
outlook for the year is constructive given a robust global economy,
more accommodative Fed policy and increased role for private
capital in the housing market.”
“As we are keenly focused on creating value for our
shareholders, 2019 was also a milestone year for Annaly’s corporate
responsibility and corporate governance initiatives with
significant enhancements made to benefit our shareholders. These
were highlighted by the announcement to internalize our manager and
the separation of the CEO and Board Chair positions. We also
substantially expanded our ESG disclosure through the creation of
our Corporate Responsibility web page, were recognized as a
'Winning Company' by 2020 Women on Boards, and were recently named
to the Bloomberg Gender-Equality Index for the third consecutive
year. We look forward to building on these successes in 2020 as we
continue to prioritize delivering attractive risk-adjusted returns
while driving a positive impact over the long term.”
Financial Performance
The following table summarizes certain key performance
indicators as of and for the quarters ended December 31, 2019,
September 30, 2019 and December 31, 2018:
December 31, 2019
September 30, 2019
December 31, 2018
Book value per common share
$
9.66
$
9.21
$
9.39
Economic leverage at period-end (1)
7.2:1
7.7:1
7.0:1
GAAP net income (loss) per average common
share (2)
$
0.82
$
(0.54
)
$
(1.74
)
Annualized GAAP return (loss) on average
equity
31.20
%
(19.32
%)
(62.05
%)
Net interest margin (3)
1.67
%
0.75
%
1.34
%
Average yield on interest earning assets
(4)
3.53
%
2.89
%
3.21
%
Average cost of interest bearing
liabilities (5)
2.01
%
2.28
%
2.22
%
Net interest spread
1.52
%
0.61
%
0.99
%
Core earnings metrics *
Core earnings (excluding PAA) per average
common share (2)
$
0.26
$
0.21
$
0.29
Core earnings per average common share
(2)
$
0.32
$
0.13
$
0.26
PAA cost (benefit) per average common
share
$
(0.06
)
$
0.08
$
0.03
Annualized core return on average equity
(excluding PAA)
10.56
%
8.85
%
11.48
%
Net interest margin (excluding PAA)
(3)
1.41
%
1.10
%
1.49
%
Average yield on interest earning assets
(excluding PAA) (4)
3.25
%
3.26
%
3.38
%
Net interest spread (excluding PAA)
1.24
%
0.98
%
1.16
%
*
Represents non-GAAP financial measures.
Please refer to the "Non-GAAP Financial Measures" section for
additional information.
(1)
Computed as the sum of recourse debt, cost
basis of to-be-announced ("TBA") and CMBX derivatives outstanding,
and net forward purchases (sales) of investments divided by total
equity. Recourse debt consists of repurchase agreements and other
secured financing (excluding certain non-recourse credit
facilities). Securitized debt, certain credit facilities (included
within other secured financing) and mortgages payable are
non-recourse to the Company and are excluded from this measure.
(2)
Net of dividends on preferred stock. The
quarter ended September 30, 2019 excludes cumulative and undeclared
dividends of $0.3 million on the Company's Series I
Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
(“Series I Preferred Stock”) as of June 30, 2019.
(3)
Net interest margin represents the sum of
the Company's interest income plus TBA dollar roll income and CMBX
coupon income less interest expense and the net interest component
of interest rate swaps divided by the sum of average interest
earning assets plus average TBA contract and CMBX balances. Net
interest margin (excluding PAA) excludes the premium amortization
adjustment ("PAA") representing the cumulative impact on prior
periods, but not the current period, of quarter-over-quarter
changes in estimated long-term prepayment speeds related to the
Company’s Agency mortgage-backed securities.
(4)
Average yield on interest earning assets
represents annualized interest income divided by average interest
earning assets. Average interest earning assets reflects the
average amortized cost of our investments during the period.
Average yield on interest earning assets (excluding PAA) is
calculated using annualized interest income (excluding PAA).
(5)
Average cost of interest bearing
liabilities represents annualized economic interest expense divided
by average interest bearing liabilities. Average interest bearing
liabilities reflects the average amortized cost during the period.
Economic interest expense is comprised of GAAP interest expense and
the net interest component of interest rate swaps.
Other Information
This news release and our public documents to which we refer
contain or incorporate by reference certain forward-looking
statements which are based on various assumptions (some of which
are beyond our control) and may be identified by reference to a
future period or periods or by the use of forward-looking
terminology, such as "may," "will," "believe," "expect,"
"anticipate," "continue," or similar terms or variations on those
terms or the negative of those terms. Actual results could differ
materially from those set forth in forward-looking statements due
to a variety of factors, including, but not limited to, changes in
interest rates; changes in the yield curve; changes in prepayment
rates; the availability of mortgage-backed securities and other
securities for purchase; the availability of financing and, if
available, the terms of any financing; changes in the market value
of our assets; changes in business conditions and the general
economy; our ability to grow our commercial real estate business;
our ability to grow our residential credit business; our ability to
grow our middle market lending business; credit risks related to
our investments in credit risk transfer securities, residential
mortgage-backed securities and related residential mortgage credit
assets, commercial real estate assets and corporate debt; risks
related to investments in mortgage servicing rights; our ability to
consummate any contemplated investment opportunities; changes in
government regulations or policy affecting our business; our
ability to maintain our qualification as a REIT for U.S. federal
income tax purposes; our ability to maintain our exemption from
registration under the Investment Company Act of 1940, as amended;
and risks and uncertainties associated with the Internalization,
including but not limited to the occurrence of any event, change or
other circumstances that could give rise to the termination of the
Internalization Agreement; the outcome of any legal proceedings
that may be instituted against the parties to the Internalization
Agreement; the inability to complete the Internalization due to the
failure to satisfy closing conditions or otherwise; risks that the
Internalization disrupts our current plans and operations; the
impact, if any, of the announcement or pendency of the
Internalization on our relationships with third parties; and the
amount of the costs, fees, expenses charges related to the
Internalization; and the risk that the expected benefits, including
long-term cost savings, of the Internalization are not achieved.
For a discussion of the risks and uncertainties which could cause
actual results to differ from those contained in the
forward-looking statements, see "Risk Factors" in our most recent
Annual Report on Form 10-K and any subsequent Quarterly Reports on
Form 10-Q. We do not undertake, and specifically disclaim any
obligation, to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances
after the date of such statements, except as required by law.
Annaly is a leading diversified capital manager that invests in
and finances residential and commercial assets. Annaly’s principal
business objective is to generate net income for distribution to
its stockholders and to optimize its returns through prudent
management of its diversified investment strategies. Annaly has
elected to be taxed as a real estate investment trust, or REIT, for
federal income tax purposes. Prior to the closing of the
transaction discussed above, Annaly is externally managed by Annaly
Management Company LLC. Additional information on the company can
be found at www.annaly.com.
Annaly routinely posts important information for investors on
the Company’s website, www.annaly.com. Annaly intends to use this
webpage as a means of disclosing material, non-public information,
for complying with the Company’s disclosure obligations under
Regulation FD and to post and update investor presentations and
similar materials on a regular basis. Annaly encourages investors,
analysts, the media and others interested in Annaly to monitor the
Company’s website, in addition to following Annaly’s press
releases, SEC filings, public conference calls, presentations,
webcasts and other information it posts from time to time on its
website. To sign-up for email-notifications, please visit the
"Email Alerts" section of our website, www.annaly.com, under the
"Investors" section and enter the required information to enable
notifications. The information contained on, or that may be
accessed through, the Company’s webpage is not incorporated by
reference into, and is not a part of, this document.
The Company prepares a supplemental investor presentation and a
financial summary for the benefit of its shareholders. Both the
Fourth Quarter 2019 Investor Presentation and the Fourth Quarter
2019 Financial Summary can be found at the Company’s website
(www.annaly.com) in the Investors section under Investor
Presentations.
Conference Call
The Company will hold the fourth quarter 2019 earnings
conference call on February 13, 2020 at 9:00 a.m. Eastern Time.
Participants are encouraged to pre-register for the conference call
to receive a unique PIN to gain immediate access to the call and
bypass the live operator. Pre-registration may be completed by
accessing the Pre-Registration link found on the homepage or
"Investors" section of the Company's website at www.annaly.com, or
by using the following link: http://dpregister.com/10138795.
Pre-registration may be completed at any time, including up to
and after the call start time.
For participants who would like to join the call but have not
pre-registered, access is available by dialing 844-735-3317 within
the U.S., or 412-317-5703 internationally, and requesting the
"Annaly Earnings Call."
There will also be an audio webcast of the call on
www.annaly.com. A replay of the call will be available for one week
following the conference call. The replay number is 877-344-7529
for domestic calls and 412-317-0088 for international calls and the
conference passcode is 10138795. If you would like to be added to
the e-mail distribution list, please visit www.annaly.com, click on
Investors, then select Email Alerts and complete the email
notification form.
Financial Statements
ANNALY CAPITAL MANAGEMENT,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION
(dollars in thousands, except
per share data)
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018 (1)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Assets
Cash and cash equivalents
$
1,850,729
$
1,793,921
$
1,982,311
$
1,522,605
$
1,735,749
Securities
114,833,580
116,094,061
119,926,869
104,993,271
92,623,788
Loans, net
4,462,350
3,946,614
3,546,468
3,879,324
4,585,975
Mortgage servicing rights
378,078
386,051
425,328
500,745
557,813
Assets transferred or pledged to
securitization vehicles
7,002,460
4,688,144
4,211,582
4,365,300
3,833,200
Real estate, net
725,638
725,508
733,196
734,239
739,473
Derivative assets
113,556
168,755
75,142
148,178
200,503
Reverse repurchase agreements
—
—
—
523,449
650,040
Receivable for unsettled trades
4,792
193,229
5,322
1,574,251
68,779
Principal and interest receivable
449,906
483,744
440,940
390,930
357,365
Goodwill and intangible assets, net
92,772
94,904
96,591
98,551
100,854
Other assets
381,220
381,189
357,027
441,706
333,988
Total assets
$
130,295,081
$
128,956,120
$
131,800,776
$
119,172,549
$
105,787,527
Liabilities and stockholders’
equity
Liabilities
Repurchase agreements
$
101,740,728
$
102,682,104
$
105,181,241
$
88,554,170
$
81,115,874
Other secured financing
4,455,700
4,466,030
4,127,989
4,144,623
4,183,311
Debt issued by securitization vehicles
5,622,801
3,856,082
3,470,168
3,693,766
3,347,062
Mortgages payable
485,005
485,657
498,772
510,386
511,056
Derivative liabilities
803,866
972,415
1,043,197
775,980
889,750
Payable for unsettled trades
463,387
245,626
620,784
4,763,376
583,036
Interest payable
476,335
565,797
691,327
424,391
570,928
Dividends payable
357,527
359,491
364,066
434,431
394,129
Other liabilities
93,388
99,214
95,825
89,982
74,580
Total liabilities
114,498,737
113,732,416
116,093,369
103,391,105
91,669,726
Stockholders’ equity
Preferred stock, par value $0.01 per share
(2)
1,982,026
1,982,026
2,110,346
1,778,168
1,778,168
Common stock, par value $0.01 per share
(3)
14,301
14,380
14,562
14,481
13,138
Additional paid-in capital
19,966,923
20,034,970
20,195,419
20,112,875
18,794,331
Accumulated other comprehensive income
(loss)
2,138,191
2,313,815
1,365,003
(319,376
)
(1,979,865
)
Accumulated deficit
(8,309,424
)
(9,125,895
)
(7,982,649
)
(5,809,931
)
(4,493,660
)
Total stockholders’ equity
15,792,017
15,219,296
15,702,681
15,776,217
14,112,112
Noncontrolling interests
4,327
4,408
4,726
5,227
5,689
Total equity
15,796,344
15,223,704
15,707,407
15,781,444
14,117,801
Total liabilities and equity
$
130,295,081
$
128,956,120
$
131,800,776
$
119,172,549
$
105,787,527
(1)
Derived from the audited consolidated
financial statements at December 31, 2018.
(2)
7.625% Series C Cumulative Redeemable
Preferred Stock - Includes 0 shares authorized, issued and
outstanding at December 31, 2019 and September 30, 2019. Includes
7,000,000 shares authorized, issued and outstanding at June 30,
2019, March 31, 2019 and December 31, 2018. 7.50% Series D
Cumulative Redeemable Preferred Stock - Includes 18,400,000 shares
authorized, issued and outstanding. 6.95% Series F
Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock -
Includes 28,800,000 shares authorized, issued and outstanding.
6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable
Preferred Stock - Includes 19,550,000 shares authorized and
17,000,000 shares issued and outstanding.8.125% Series H Cumulative
Redeemable Preferred Stock - Includes 0 shares authorized, issued
and outstanding at December 31, 2019, September 30, 2019 and June
30, 2019. Includes 2,200,000 shares authorized, issued and
outstanding at March 31, 2019 and December 31, 2018. 6.75% Series I
Preferred Stock - Includes 18,400,000 shares authorized and
17,700,000 issued and outstanding at December 31, 2019 and
September 30, 2019. Includes 18,400,000 shares authorized and
16,000,000 issued and outstanding at June 30, 2019. Includes 0
shares authorized, issued and outstanding at March 31, 2019 and
December 31, 2018.
(3)
Includes 2,914,850,000 shares authorized
and 1,430,106,199 shares issued and outstanding at December 31,
2019. Includes 2,914,850,000 shares authorized and 1,437,964,466
shares issued and outstanding at September 30, 2019. Includes
2,907,850,000 shares authorized and 1,456,263,410 shares issued and
outstanding at June 30, 2019. Includes 1,924,050,000 shares
authorized and 1,448,103,248 shares issued and outstanding at March
31, 2019. Includes 1,924,050,000 shares authorized and
1,313,763,450 shares issued and outstanding at December 31,
2018.
ANNALY CAPITAL MANAGEMENT,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except
per share data)
(Unaudited)
For the quarters ended
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
Net interest income
Interest income
$
1,074,214
$
919,299
$
927,598
$
866,186
$
859,674
Interest expense
620,058
766,905
750,217
647,695
586,774
Net interest income
454,156
152,394
177,381
218,491
272,900
Realized and unrealized gains
(losses)
Net interest component of interest rate
swaps
45,221
88,466
83,653
134,035
65,889
Realized gains (losses) on termination or
maturity of interest rate swaps
(4,615
)
(682,602
)
(167,491
)
(588,256
)
—
Unrealized gains (losses) on interest rate
swaps
782,608
(326,309
)
(1,276,019
)
(390,556
)
(1,313,882
)
Subtotal
823,214
(920,445
)
(1,359,857
)
(844,777
)
(1,247,993
)
Net gains (losses) on disposal of
investments
17,783
66,522
(38,333
)
(93,916
)
(747,505
)
Net gains (losses) on other
derivatives
(42,312
)
(16,888
)
(506,411
)
(115,159
)
(484,872
)
Net unrealized gains (losses) on
instruments measured at fair value through earnings
(5,636
)
(1,091
)
(4,881
)
47,629
(18,169
)
Loan loss provision
(7,362
)
(3,504
)
—
(5,703
)
(3,496
)
Subtotal
(37,527
)
45,039
(549,625
)
(167,149
)
(1,254,042
)
Total realized and unrealized gains
(losses)
785,687
(875,406
)
(1,909,482
)
(1,011,926
)
(2,502,035
)
Other income (loss)
42,656
35,074
28,181
30,502
52,377
General and administrative
expenses
Compensation and management fee
40,403
41,161
44,231
44,833
43,750
Other general and administrative
expenses
32,948
24,977
34,177
38,904
33,323
Total general and administrative
expenses
73,351
66,138
78,408
83,737
77,073
Income (loss) before income
taxes
1,209,148
(754,076
)
(1,782,328
)
(846,670
)
(2,253,831
)
Income taxes
(594
)
(6,907
)
(5,915
)
2,581
1,041
Net income (loss)
1,209,742
(747,169
)
(1,776,413
)
(849,251
)
(2,254,872
)
Net income (loss) attributable to
noncontrolling interests
68
(110
)
(83
)
(101
)
17
Net income (loss) attributable to
Annaly
1,209,674
(747,059
)
(1,776,330
)
(849,150
)
(2,254,889
)
Dividends on preferred stock
(1)
35,509
36,151
32,422
32,494
32,494
Net income (loss) available (related)
to common stockholders
$
1,174,165
$
(783,210
)
$
(1,808,752
)
$
(881,644
)
$
(2,287,383
)
Net income (loss) per share available
(related) to common stockholders
Basic
$
0.82
$
(0.54
)
$
(1.24
)
$
(0.63
)
$
(1.74
)
Diluted
$
0.82
$
(0.54
)
$
(1.24
)
$
(0.63
)
$
(1.74
)
Weighted average number of common
shares outstanding
Basic
1,431,079,108
1,453,359,211
1,456,038,736
1,398,614,205
1,314,377,748
Diluted
1,431,079,108
1,453,359,211
1,456,038,736
1,398,614,205
1,314,377,748
Other comprehensive income
(loss)
Net income (loss)
$
1,209,742
$
(747,169
)
$
(1,776,413
)
$
(849,251
)
$
(2,254,872
)
Unrealized gains (losses) on
available-for-sale securities
(153,192
)
1,034,873
1,654,783
1,599,398
1,100,052
Reclassification adjustment for net
(gains) losses included in net income (loss)
(22,432
)
(86,061
)
29,596
61,091
743,039
Other comprehensive income (loss)
(175,624
)
948,812
1,684,379
1,660,489
1,843,091
Comprehensive income (loss)
1,034,118
201,643
(92,034
)
811,238
(411,781
)
Comprehensive income (loss) attributable
to noncontrolling interests
68
(110
)
(83
)
(101
)
17
Comprehensive income (loss) attributable
to Annaly
1,034,050
201,753
(91,951
)
811,339
(411,798
)
Dividends on preferred stock (1)
35,509
36,151
32,422
32,494
32,494
Comprehensive income (loss)
attributable to common stockholders
$
998,541
$
165,602
$
(124,373
)
$
778,845
$
(444,292
)
(1)
The quarter ended September 30, 2019
excludes, and the quarter ended June 30, 2019 includes, cumulative
and undeclared dividends of $0.3 million on the Company's Series I
Preferred Stock as of June 30, 2019.
ANNALY CAPITAL MANAGEMENT,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except
per share data)
For the years ended
December 31, 2019
December 31, 2018 (1)
(unaudited)
Net interest income
Interest income
$
3,787,297
$
3,332,563
Interest expense
2,784,875
1,897,860
Net interest income
1,002,422
1,434,703
Realized and unrealized gains
(losses)
Net interest component of interest rate
swaps
351,375
100,553
Realized gains (losses) on termination or
maturity of interest rate swaps
(1,442,964
)
1,409
Unrealized gains (losses) on interest rate
swaps
(1,210,276
)
424,081
Subtotal
(2,301,865
)
526,043
Net gains (losses) on disposal of
investments
(47,944
)
(1,124,448
)
Net gains (losses) on other
derivatives
(680,770
)
(403,001
)
Net unrealized gains (losses) on
instruments measured at fair value through earnings
36,021
(158,082
)
Loan loss provision
(16,569
)
(3,496
)
Subtotal
(709,262
)
(1,689,027
)
Total realized and unrealized gains
(losses)
(3,011,127
)
(1,162,984
)
Other income (loss)
136,413
109,927
General and administrative
expenses
Compensation and management fee
170,628
179,841
Other general and administrative
expenses
131,006
150,032
Total general and administrative
expenses
301,634
329,873
Income (loss) before income
taxes
(2,173,926
)
51,773
Income taxes
(10,835
)
(2,375
)
Net income (loss)
(2,163,091
)
54,148
Net income (loss) attributable to
noncontrolling interests
(226
)
(260
)
Net income (loss) attributable to
Annaly
(2,162,865
)
54,408
Dividends on preferred stock
136,576
129,312
Net income (loss) available (related)
to common stockholders
$
(2,299,441
)
$
(74,904
)
Net income (loss) per share available
(related) to common stockholders
Basic
$
(1.60
)
$
(0.06
)
Diluted
$
(1.60
)
$
(0.06
)
Weighted average number of common
shares outstanding
Basic
1,434,912,682
1,209,601,809
Diluted
1,434,912,682
1,209,601,809
Other comprehensive income
(loss)
Net income (loss)
$
(2,163,091
)
$
54,148
Unrealized gains (losses) on
available-for-sale securities
4,135,862
(2,004,166
)
Reclassification adjustment for net
(gains) losses included in net income (loss)
(17,806
)
1,150,321
Other comprehensive income (loss)
4,118,056
(853,845
)
Comprehensive income (loss)
1,954,965
(799,697
)
Comprehensive income (loss) attributable
to noncontrolling interests
(226
)
(260
)
Comprehensive income (loss) attributable
to Annaly
1,955,191
(799,437
)
Dividends on preferred stock
136,576
129,312
Comprehensive income (loss)
attributable to common stockholders
$
1,818,615
$
(928,749
)
(1) Derived from the audited consolidated
financial statements for the year ended December 31, 2018.
Key Financial Data
The following table presents key metrics of the Company’s
portfolio, liabilities and hedging positions, and performance as of
and for the quarters ended December 31, 2019, September 30, 2019,
and December 31, 2018:
December 31, 2019
September 30, 2019
December 31, 2018
Portfolio related metrics
Fixed-rate Residential Securities as a
percentage of total Residential Securities
97
%
97
%
93
%
Adjustable-rate and floating-rate
Residential Securities as a percentage of total Residential
Securities
3
%
3
%
7
%
Weighted average experienced CPR for the
period
17.8
%
14.6
%
7.9
%
Weighted average projected long-term CPR
at period-end
13.9
%
16.3
%
10.1
%
Liabilities and hedging metrics
Weighted average days to maturity on
repurchase agreements outstanding at period-end
65
45
77
Hedge ratio (1)
75
%
73
%
94
%
Weighted average pay rate on interest rate
swaps at period-end (2)
1.84
%
1.88
%
2.17
%
Weighted average receive rate on interest
rate swaps at period-end (2)
1.89
%
2.16
%
2.68
%
Weighted average net rate on interest rate
swaps at period-end (2)
(0.05
%)
(0.28
%)
(0.51
%)
Leverage at period-end (3)
7.1:1
7.3:1
6.3:1
Economic leverage at period-end (4)
7.2:1
7.7:1
7.0:1
Capital ratio at period-end
12.0
%
11.2
%
12.1
%
Performance related metrics
Book value per common share
$
9.66
$
9.21
$
9.39
GAAP net income (loss) per average common
share (5)
$
0.82
$
(0.54
)
$
(1.74
)
Annualized GAAP return (loss) on average
equity
31.20
%
(19.32
%)
(62.05
%)
Net interest margin
1.67
%
0.75
%
1.34
%
Average yield on interest earning assets
(6)
3.53
%
2.89
%
3.21
%
Average cost of interest bearing
liabilities (7)
2.01
%
2.28
%
2.22
%
Net interest spread
1.52
%
0.61
%
0.99
%
Dividend declared per common share
$
0.25
$
0.25
$
0.30
Annualized dividend yield (8)
10.62
%
11.36
%
12.22
%
Core earnings metrics *
Core earnings (excluding PAA) per average
common share (5)
$
0.26
$
0.21
$
0.29
Core earnings per average common share
(5)
$
0.32
$
0.13
$
0.26
PAA cost (benefit) per average common
share
$
(0.06
)
$
0.08
$
0.03
Annualized core return on average equity
(excluding PAA)
10.56
%
8.85
%
11.48
%
Net interest margin (excluding PAA)
1.41
%
1.10
%
1.49
%
Average yield on interest earning assets
(excluding PAA) (6)
3.25
%
3.26
%
3.38
%
Net interest spread (excluding PAA)
1.24
%
0.98
%
1.16
%
*
Represents non-GAAP financial measures.
Please refer to the "Non-GAAP Financial Measures" section for
additional information.
(1)
Measures total notional balances of
interest rate swaps, interest rate swaptions (excluding receiver
swaptions) and futures relative to repurchase agreements, other
secured financing and cost basis of TBA derivatives outstanding;
excludes MSRs and the effects of term financing, both of which
serve to reduce interest rate risk. Additionally, the hedge ratio
does not take into consideration differences in duration between
assets and liabilities.
(2)
Excludes forward starting swaps.
(3)
Debt consists of repurchase agreements,
other secured financing, securitized debt and mortgages payable.
Certain credit facilities (included within other secured
financing), securitized debt and mortgages payable are non-recourse
to the Company.
(4)
Computed as the sum of recourse debt, cost
basis of TBA and CMBX derivatives outstanding, and net forward
purchases (sales) of investments divided by total equity.
(5)
Net of dividends on preferred stock. The
quarter ended September 30, 2019 excludes cumulative and undeclared
dividends of $0.3 million on the Company's Series I Preferred Stock
as of June 30, 2019.
(6)
Average yield on interest earning assets
represents annualized interest income divided by average interest
earning assets. Average interest earning assets reflects the
average amortized cost of our investments during the period.
Average yield on interest earning assets (excluding PAA) is
calculated using annualized interest income (excluding PAA).
(7)
Average cost of interest bearing
liabilities represents annualized economic interest expense divided
by average interest bearing liabilities. Average interest bearing
liabilities reflects the average amortized cost during the period.
Economic interest expense is comprised of GAAP interest expense and
the net interest component of interest rate swaps.
(8)
Based on the closing price of the
Company’s common stock of $9.42, $8.80 and $9.82 at December 31,
2019, September 30, 2019 and December 31, 2018, respectively.
The following table contains additional information on our
residential and commercial investments as of the dates
presented:
For the quarters ended
December 31, 2019
September 30, 2019
December 31, 2018
Agency mortgage-backed securities
$
112,893,367
$
114,462,524
$
90,752,995
Credit risk transfer securities
531,322
474,765
552,097
Non-agency mortgage-backed securities
1,135,868
1,015,921
1,161,938
Commercial mortgage-backed securities
273,023
140,851
156,758
Total securities
$
114,833,580
$
116,094,061
$
92,623,788
Residential mortgage loans
$
1,647,787
$
1,219,402
$
1,359,806
Commercial real estate debt and preferred
equity
669,713
611,429
1,296,803
Corporate debt
2,144,850
2,115,783
1,887,182
Loans held for sale
—
—
42,184
Total loans, net
$
4,462,350
$
3,946,614
$
4,585,975
Mortgage servicing rights
$
378,078
$
386,051
$
557,813
Agency mortgage-backed securities
transferred or pledged to securitization vehicles
$
1,122,588
$
—
$
—
Residential mortgage loans transferred or
pledged to securitization vehicles
2,598,374
2,376,731
1,094,831
Commercial real estate debt investments
transferred or pledged to securitization vehicles
2,345,120
2,311,413
2,738,369
Commercial real estate debt and preferred
equity transferred or pledged to securitization vehicles
936,378
—
—
Assets transferred or pledged to
securitization vehicles
$
7,002,460
$
4,688,144
$
3,833,200
Real estate, net
$
725,638
$
725,508
$
739,473
Total residential and commercial
investments
$
127,402,106
$
125,840,378
$
102,340,249
Non-GAAP Financial Measures
To supplement its consolidated financial statements, which are
prepared and presented in accordance with U.S. generally accepted
accounting principles ("GAAP"), the Company provides the following
non-GAAP measures:
- core earnings and core earnings (excluding PAA);
- core earnings attributable to common stockholders and core
earnings attributable to common stockholders (excluding PAA);
- core earnings and core earnings (excluding PAA) per average
common share;
- annualized core return on average equity (excluding PAA);
- interest income (excluding PAA);
- economic interest expense;
- economic net interest income (excluding PAA);
- average yield on interest earning assets (excluding PAA);
- net interest margin (excluding PAA); and
- net interest spread (excluding PAA).
These measures should not be considered a substitute for, or
superior to, financial measures computed in accordance with GAAP.
While intended to offer a fuller understanding of the Company’s
results and operations, non-GAAP financial measures also have
limitations. For example, the Company may calculate its non-GAAP
metrics, such as core earnings, or the PAA, differently than its
peers making comparative analysis difficult. Additionally, in the
case of non-GAAP measures that exclude the PAA, the amount of
amortization expense excluding the PAA is not necessarily
representative of the amount of future periodic amortization nor is
it indicative of the term over which the Company will amortize the
remaining unamortized premium. Changes to actual and estimated
prepayments will impact the timing and amount of premium
amortization and, as such, both GAAP and non-GAAP results.
These non-GAAP measures provide additional detail to enhance
investor understanding of the Company’s period-over-period
operating performance and business trends, as well as for assessing
the Company’s performance versus that of industry peers. Additional
information pertaining to the Company’s use of these non-GAAP
financial measures, including discussion of how each such measure
may be useful to investors, and reconciliations to their most
directly comparable GAAP results are provided below.
Core earnings and core earnings (excluding PAA), core
earnings attributable to common stockholders and core earnings
attributable to common stockholders (excluding PAA), core earnings
and core earnings (excluding PAA) per average common share and
annualized core return on average equity (excluding PAA)
The Company's principal business objective is to generate net
income for distribution to its stockholders and to preserve capital
through prudent selection of investments and continuous management
of its portfolio. The Company generates net income by earning a net
interest spread on its investment portfolio, which is a function of
interest income from its investment portfolio less financing,
hedging and operating costs. Core earnings, which is defined as the
sum of (a) economic net interest income, (b) TBA dollar roll income
and CMBX coupon income, (c) realized amortization of MSRs, (d)
other income (loss) (excluding depreciation and amortization
expense on real estate and related intangibles, non-core income
allocated to equity method investments and other non-core
components of other income (loss)), (e) general and administrative
expenses (excluding transaction expenses and non-recurring items)
and (f) income taxes (excluding the income tax effect of non-core
income (loss) items), and core earnings (excluding PAA), which is
defined as core earnings excluding the premium amortization
adjustment representing the cumulative impact on prior periods, but
not the current period, of quarter-over-quarter changes in
estimated long-term prepayment speeds related to the Company’s
Agency mortgage-backed securities, are used by the Company's
management and, the Company believes, used by analysts and
investors to measure its progress in achieving its principal
business objective.
The Company seeks to fulfill this objective through a variety of
factors including portfolio construction, the degree of market risk
exposure and related hedge profile, and the use and forms of
leverage, all while operating within the parameters of the
Company's capital allocation policy and risk governance
framework.
The Company believes these non-GAAP measures provide management
and investors with additional details regarding the Company’s
underlying operating results and investment portfolio trends by (i)
making adjustments to account for the disparate reporting of
changes in fair value where certain instruments are reflected in
GAAP net income (loss) while others are reflected in other
comprehensive income (loss), and (ii) by excluding certain
unrealized, non-cash or episodic components of GAAP net income
(loss) in order to provide additional transparency into the
operating performance of the Company’s portfolio. Annualized core
return on average equity (excluding PAA), which is calculated by
dividing core earnings (excluding PAA) over average stockholders’
equity, provides investors with additional detail on the core
earnings generated by the Company’s invested equity capital.
The following table presents a reconciliation of GAAP financial
results to non-GAAP core earnings for the periods presented:
For the quarters ended
December 31, 2019
September 30, 2019
December 31, 2018
(dollars in thousands, except
per share data)
GAAP net income (loss)
$
1,209,742
$
(747,169
)
$
(2,254,872
)
Net income (loss) attributable to
noncontrolling interests
68
(110
)
17
Net income (loss) attributable to
Annaly
1,209,674
(747,059
)
(2,254,889
)
Adjustments to exclude reported
realized and unrealized (gains) losses
Realized (gains) losses on termination or
maturity of interest rate swaps
4,615
682,602
—
Unrealized (gains) losses on interest rate
swaps
(782,608
)
326,309
1,313,882
Net (gains) losses on disposal of
investments
(17,783
)
(66,522
)
747,505
Net (gains) losses on other
derivatives
42,312
16,888
484,872
Net unrealized (gains) losses on
instruments measured at fair value through earnings
5,636
1,091
18,169
Loan loss provision
7,362
3,504
3,496
Adjustments to exclude components of
other (income) loss
Depreciation and amortization expense
related to commercial real estate
9,823
9,974
11,000
Non-core (income) loss allocated to equity
method investments (1)
(3,979
)
4,541
(10,307
)
Adjustments to exclude components of
general and administrative expenses and income taxes
Transaction expenses and non-recurring
items (3)
3,634
2,622
3,816
Income tax effect of non-core income
(loss) items
(418
)
(2,762
)
3,334
Adjustments to add back components of
realized and unrealized (gains) losses
TBA dollar roll income and CMBX coupon
income (4)
36,901
15,554
69,572
MSR amortization (5)
(22,120
)
(21,963
)
(18,753
)
Core earnings *
493,049
224,779
371,697
Less:
Premium amortization adjustment cost
(benefit)
(83,892
)
117,152
45,472
Core earnings (excluding PAA) *
$
409,157
$
341,931
$
417,169
Dividends on preferred stock (6)
35,509
36,151
32,494
Core earnings attributable to common
stockholders *
$
457,540
$
188,628
$
339,203
Core earnings attributable to common
stockholders (excluding PAA) *
$
373,648
$
305,780
$
384,675
GAAP net income (loss) per average
common share
$
0.82
$
(0.54
)
$
(1.74
)
Core earnings per average common share
*
$
0.32
$
0.13
$
0.26
Core earnings (excluding PAA) per
average common share *
$
0.26
$
0.21
$
0.29
Annualized GAAP return (loss) on
average equity
31.20
%
(19.32
%)
(62.05
%)
Annualized core return on average
equity (excluding PAA) *
10.56
%
8.85
%
11.48
%
For the years ended
December 31, 2019
December 31, 2018
(dollars in thousands, except
per share data)
GAAP net income (loss)
$
(2,163,091
)
$
54,148
Net income (loss) attributable to
noncontrolling interests
(226
)
(260
)
Net income (loss) attributable to
Annaly
(2,162,865
)
54,408
Adjustments to exclude reported
realized and unrealized (gains) losses
Realized (gains) losses on termination or
maturity of interest rate swaps
1,442,964
(1,409
)
Unrealized (gains) losses on interest rate
swaps
1,210,276
(424,081
)
Net (gains) losses on disposal of
investments
47,944
1,124,448
Net (gains) losses on other
derivatives
680,770
403,001
Net unrealized (gains) losses on
instruments measured at fair value through earnings
(36,021
)
158,082
Loan loss provision
16,569
3,496
Adjustments to exclude components of
other (income) loss
Depreciation and amortization expense
related to commercial real estate
40,058
20,278
Non-core (income) loss allocated to equity
method investments (1)
21,385
(12,665
)
Non-core other (income) loss (2)
—
44,525
Adjustments to exclude components of
general and administrative expenses and income taxes
Transaction expenses and non-recurring
items (3)
19,284
65,416
Income tax effect of non-core income
(loss) items
(5,961
)
4,220
Adjustments to add back components of
realized and unrealized (gains) losses
TBA dollar roll income and CMBX coupon
income (4)
123,818
276,986
MSR amortization (5)
(77,719
)
(79,764
)
Core earnings *
1,320,502
1,636,941
Less:
Premium amortization adjustment cost
(benefit)
254,894
(62,021
)
Core earnings (excluding PAA) *
$
1,575,396
$
1,574,920
Dividends on preferred stock
136,576
129,312
Core earnings attributable to common
stockholders *
$
1,183,926
$
1,507,629
Core earnings attributable to common
stockholders (excluding PAA) *
$
1,438,820
$
1,445,608
GAAP net income (loss) per average
common share
$
(1.60
)
$
(0.06
)
Core earnings per average common share
*
$
0.83
$
1.25
Core earnings (excluding PAA) per
average common share *
$
1.00
$
1.20
Annualized GAAP return (loss) on
average equity
(14.11
)%
0.38
%
Annualized core return on average
equity (excluding PAA) *
10.28
%
10.99
%
*
Represents a non-GAAP financial
measure.
(1)
The Company excludes non-core (income)
loss allocated to equity method investments, which represents the
unrealized (gains) losses allocated to equity interests in a
portfolio of MSR, which is a component of Other income (loss). The
quarter and year ended December 31, 2018 also includes a realized
gain on sale within an unconsolidated joint venture, which is a
component of Other income (loss).
(2)
Represents the amount of consideration
paid for the acquisition of MTGE Investment Corp. (“MTGE”) in
excess of the fair value of net assets acquired. This amount is
primarily attributable to a decline in portfolio valuation between
the pricing and closing dates of the transaction and is consistent
with changes in market values observed for similar instruments over
the same period.
(3)
Represents costs incurred in connection
with securitizations of residential whole loans. The quarter and
year ended December 31, 2019 also includes costs incurred in
connection with the securitizations of commercial loans and
mortgage-backed securities. The year ended December 31, 2018 also
includes costs incurred in connection with the MTGE
transaction.
(4)
TBA dollar roll income and CMBX coupon
income each represent a component of Net gains (losses) on other
derivatives. CMBX coupon income totaled $1.3 million, $1.5 million
and $1.2 million for the quarters ended December 31, 2019,
September 30, 2019 and December 31, 2018, respectively. CMBX coupon
income totaled $4.6 million and $2.3 million for the years ended
December 31, 2019 and December 31, 2018, respectively.
(5)
MSR amortization represents the portion of
changes in fair value that is attributable to the realization of
estimated cash flows on the Company’s MSR portfolio and is reported
as a component of Net unrealized gains (losses) on instruments
measured at fair value.
(6)
The quarter ended September 30, 2019
excludes cumulative and undeclared dividends of $0.3 million on the
Company's Series I Preferred Stock as of June 30, 2019.
From time to time, the Company enters into TBA forward contracts
as an alternate means of investing in and financing Agency
mortgage-backed securities. A TBA contract is an agreement to
purchase or sell, for future delivery, an Agency mortgage-backed
security with a specified issuer, term and coupon. A TBA dollar
roll represents a transaction where TBA contracts with the same
terms but different settlement dates are simultaneously bought and
sold. The TBA contract settling in the later month typically prices
at a discount to the earlier month contract with the difference in
price commonly referred to as the "drop". The drop is a reflection
of the expected net interest income from an investment in similar
Agency mortgage-backed securities, net of an implied financing
cost, that would be foregone as a result of settling the contract
in the later month rather than in the earlier month. The drop
between the current settlement month price and the forward
settlement month price occurs because in the TBA dollar roll
market, the party providing the financing is the party that would
retain all principal and interest payments accrued during the
financing period. Accordingly, TBA dollar roll income generally
represents the economic equivalent of the net interest income
earned on the underlying Agency mortgage-backed security less an
implied financing cost.
TBA dollar roll transactions are accounted for under GAAP as a
series of derivatives transactions. The fair value of TBA
derivatives is based on methods similar to those used to value
Agency mortgage-backed securities. The Company records TBA
derivatives at fair value on its Consolidated Statements of
Financial Condition and recognizes periodic changes in fair value
as Net gains (losses) on other derivatives in the Consolidated
Statements of Comprehensive Income (Loss), which includes both
unrealized and realized gains and losses on derivatives (excluding
interest rate swaps).
TBA dollar roll income is calculated as the difference in price
between two TBA contracts with the same terms but different
settlement dates multiplied by the notional amount of the TBA
contract. Although accounted for as derivatives, TBA dollar rolls
capture the economic equivalent of net interest income, or carry,
on the underlying Agency mortgage-backed security (interest income
less an implied cost of financing). TBA dollar roll income is
reported as a component of Net gains (losses) on other derivatives
in the Consolidated Statements of Comprehensive Income (Loss).
The CMBX index is a synthetic tradable index referencing a
basket of 25 commercial mortgage-backed securities ("CMBS") of a
particular rating and vintage. The CMBX index allows investors to
take a long exposure (referred to as selling protection) or short
exposure (referred to as buying protection) on the respective
basket of CMBS securities and is structured as a "pay-as-you-go"
contract whereby the protection buyer pays to the protection seller
a standardized running coupon on the contracted notional amount.
The Company reports income (expense) on CMBX positions in Net gains
(losses) on other derivatives in the Consolidated Statements of
Comprehensive Income (Loss). The coupon payments received or paid
on CMBX positions are equivalent to interest income (expense) and
therefore included in core earnings.
Premium Amortization Expense
In accordance with GAAP, the Company amortizes or accretes
premiums or discounts into interest income for its Agency
mortgage-backed securities, excluding interest-only securities,
multifamily and reverse mortgages, taking into account estimates of
future principal prepayments in the calculation of the effective
yield. The Company recalculates the effective yield as differences
between anticipated and actual prepayments occur. Using third-party
model and market information to project future cash flows and
expected remaining lives of securities, the effective interest rate
determined for each security is applied as if it had been in place
from the date of the security’s acquisition. The amortized cost of
the security is then adjusted to the amount that would have existed
had the new effective yield been applied since the acquisition
date. The adjustment to amortized cost is offset with a charge or
credit to interest income. Changes in interest rates and other
market factors will impact prepayment speed projections and the
amount of premium amortization recognized in any given period.
The Company’s GAAP metrics include the unadjusted impact of
amortization and accretion associated with this method. Certain of
the Company’s non-GAAP metrics exclude the effect of the PAA, which
quantifies the component of premium amortization representing the
cumulative impact on prior periods, but not the current period, of
quarter-over-quarter changes in estimated long-term CPR.
The following table illustrates the impact of the PAA on premium
amortization expense for the Company’s Residential Securities
portfolio and residential securities transferred or pledged to
securitization vehicles, for the quarters ended December 31, 2019,
September 30, 2019, and December 31, 2018:
For the quarters ended
December 31, 2019
September 30, 2019
December 31, 2018
(dollars in thousands)
Premium amortization expense
(accretion)
$
171,447
$
376,306
$
220,131
Less: PAA cost (benefit)
(83,892
)
117,152
45,472
Premium amortization expense (excluding
PAA)
$
255,339
$
259,154
$
174,659
For the quarters ended
December 31, 2019
September 30, 2019
December 31, 2018
(per average common
share)
Premium amortization expense
(accretion)
$
0.12
$
0.26
$
0.17
Less: PAA cost (benefit) (1)
(0.06
)
0.08
0.03
Premium amortization expense (excluding
PAA)
$
0.18
$
0.18
$
0.14
(1)
The Company separately calculates core
earnings per average common share and core earnings (excluding PAA)
per average common share, with the difference between these two per
share amounts attributed to the PAA cost (benefit) per average
common share. As such, the reported value of the PAA cost (benefit)
per average common share may not reflect the result of dividing the
PAA cost (benefit) by the weighted average number of common shares
outstanding due to rounding.
Interest income (excluding PAA), economic interest expense
and economic net interest income (excluding PAA)
Interest income (excluding PAA) represents interest income
excluding the effect of the PAA, and serves as the basis for
deriving average yield on interest earning assets (excluding PAA),
net interest spread (excluding PAA) and net interest margin
(excluding PAA), which are discussed below. The Company believes
this measure provides management and investors with additional
detail to enhance their understanding of the Company’s operating
results and trends by excluding the component of premium
amortization expense representing the cumulative impact on prior
periods, but not the current period, of quarter-over-quarter
changes in estimated long-term prepayment speeds related to the
Company’s Agency mortgage-backed securities (other than
interest-only securities), which can obscure underlying trends in
the performance of the portfolio.
Economic interest expense includes GAAP interest expense and the
net interest component of interest rate swaps. The Company uses
interest rate swaps to manage its exposure to changing interest
rates on its repurchase agreements by economically hedging cash
flows associated with these borrowings. Accordingly, adding the net
interest component of interest rate swaps to interest expense, as
computed in accordance with GAAP, reflects the total contractual
interest expense and thus, provides investors with additional
information about the cost of the Company's financing strategy. The
Company may use market agreed coupon (“MAC”) interest rate swaps in
which the Company may receive or make a payment at the time of
entering into such interest rate swap to compensate for the
off-market nature of such interest rate swap. In accordance with
GAAP, upfront payments associated with MAC interest rate swaps are
not reflected in the net interest component of interest rate swaps
in the Company's Consolidated Statements of Comprehensive Income
(Loss). The Company did not enter into any MAC interest rate swaps
during the quarter ended December 31, 2019.
Similarly, economic net interest income (excluding PAA), as
computed below, provides investors with additional information to
enhance their understanding of the net economics of our primary
business operations.
For the quarters ended
December 31, 2019
September 30, 2019
December 31, 2018
Interest income (excluding PAA)
reconciliation
(dollars in thousands)
GAAP interest income
$
1,074,214
$
919,299
$
859,674
Premium amortization adjustment
(83,892
)
117,152
45,472
Interest income (excluding PAA)
*
$
990,322
$
1,036,451
$
905,146
Economic interest expense
reconciliation
GAAP interest expense
$
620,058
$
766,905
$
586,774
Add:
Net interest component of interest rate
swaps
(45,221
)
(88,466
)
(65,889
)
Economic interest expense *
$
574,837
$
678,439
$
520,885
Economic net interest income (excluding
PAA) reconciliation
Interest income (excluding PAA) *
$
990,322
$
1,036,451
$
905,146
Less:
Economic interest expense *
574,837
678,439
520,885
Economic net interest income (excluding
PAA) *
$
415,485
$
358,012
$
384,261
* Represents a non-GAAP financial
measure.
Average yield on interest earning assets (excluding PAA), net
interest spread (excluding PAA) and net interest margin (excluding
PAA)
Net interest spread (excluding PAA), which is the difference
between the average yield on interest earning assets (excluding
PAA) and the average cost of interest bearing liabilities, and net
interest margin (excluding PAA), which is calculated as the sum of
interest income (excluding PAA) plus TBA dollar roll income and
CMBX coupon income less interest expense and the net interest
component of interest rate swaps divided by the sum of average
interest earning assets plus average TBA contract and CMBX
balances, provide management with additional measures of the
Company’s profitability that management relies upon in monitoring
the performance of the business.
Disclosure of these measures, which are presented below,
provides investors with additional detail regarding how management
evaluates the Company’s performance.
For the quarters ended
December 31, 2019
September 30, 2019
December 31, 2018
Economic metrics (excluding
PAA)
(dollars in thousands)
Average interest earning assets
$
121,801,951
$
127,207,668
$
107,232,861
Interest income (excluding PAA) *
$
990,322
$
1,036,451
$
905,146
Average yield on interest earning assets
(excluding PAA) *
3.25
%
3.26
%
3.38
%
Average interest bearing liabilities
$
111,873,379
$
116,391,094
$
91,746,160
Economic interest expense *
$
574,837
$
678,439
$
520,885
Average cost of interest bearing
liabilities
2.01
%
2.28
%
2.22
%
Economic net interest income (excluding
PAA) *
$
415,485
$
358,012
$
384,261
Net interest spread (excluding PAA) *
1.24
%
0.98
%
1.16
%
Interest income (excluding PAA) *
$
990,322
$
1,036,451
$
905,146
TBA dollar roll income and CMBX coupon
income
36,901
15,554
69,572
Interest expense
(620,058
)
(766,905
)
(586,774
)
Net interest component of interest rate
swaps
45,221
88,466
65,889
Subtotal
$
452,386
$
373,566
$
453,833
Average interest earnings assets
$
121,801,951
$
127,207,668
$
107,232,861
Average TBA contract and CMBX balances
6,878,502
9,248,502
14,788,453
Subtotal
$
128,680,453
$
136,456,170
$
122,021,314
Net interest margin (excluding PAA)
*
1.41
%
1.10
%
1.49
%
* Represents a non-GAAP financial
measure.
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version on businesswire.com: https://www.businesswire.com/news/home/20200212005833/en/
Annaly Capital Management, Inc. Investor Relations 1-888-8Annaly
www.annaly.com
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